The 2024 Terrorism Financing (TF) National Risk Assessment (NRA) offers an updated evaluation of Singapore’s TF landscape since the TF NR published in 2020. It reflects learnings and insights, particularly considering the digital economy’s accelerated growth in Asia due to the COVID-19 pandemic. This enables law enforcement, financial intelligence, regulatory, policy-making, and private sector entities to implement targeted, risk-focused CFT strategies and mitigation measures.

Singapore’s key TF threats stem from (i) terrorist groups such as the Islamic State of Iraq and Syria (“ISIS”), Al-Qaeda, and Jemaah Islamiyah, potential spillovers from the ongoing Israel-Hamas conflict and tensions in the Middle East, and (ii) radicalised individuals who are sympathetic towards the cause of these terrorist groups, particularly ISIS.

  • ISIS: Following its retreat in 2018, ISIS is believed to have smuggled approximately USD 400 million out of Iraq and Syria. Known means of transfers involve cash couriers, money remittances, bank transfers, virtual currencies, and online transactions.
  • Al-Qaeda and Jemaah Islamiyah: There are indications that Al-Qaeda and Jemaah Islamiyah have been rebuilding through their “long game” strategy and may resume planning large-scale attacks, necessitating the movement and raising of funds.
  • Radicalised individuals: Singapore continues to detect radicalised individuals from both the local and foreign worker populations. In recent years, the majority of self-radicalised individuals detected in Singapore have been supporters of ISIS.

The main TF modalities observed from known cases include self-funding from legitimate or existing sources, namely individuals’ salaries or savings, and transfers via licensed money remittances. The amounts involved in these TF cases are generally small. Although there have been no instances of individuals leveraging newer forms of cross-border fast payment systems for TF purposes, there is an increased risk that terrorists, terrorist organisations, and their supporters may exploit the convenience of these new online transaction channels or virtual currencies/assets to further their terrorist causes.

The 2024 TF NRA identifies the following sectors as being at risk of being exploited for TF:

  • Money remittances, including unlicensed and cross-border online payments: The money remittance sector, particularly unlicensed and cross-border online payments, is identified as posing a high risk for TF. The demographic profile of users and the established transaction corridors involving countries in the region that are more exposed to terrorism/TF risks heighten Singapore’s vulnerability. The disparities in TF detection capabilities across the sector, with smaller-scale remittance agents potentially lacking the resources to employ advanced tools, further contribute to the vulnerability.
  • Banks, including new cross-border fast payment systems: The banking sector, including new cross-border fast payment systems, is assessed as having a medium-high risk for TF. Singapore’s status as an international financial centre, coupled with its geographical proximity to countries with active terrorist activities or terrorist groups, makes it vulnerable to being used as a conduit for TF purposes. The challenges in detecting TF due to small transaction amounts and their similarity to legitimate transactions further complicate the issue.
  • Digital payment token (“DPT”) service providers: The TF risks associated with DPT service providers have been elevated from medium-low to medium-high, reflecting the growing risk of exploited virtual assets to facilitate TF activities. The anonymity, speed, and cross-border transactions facilitated by DPT service providers contribute to their vulnerability. The lack of consistency in AML/CFT controls and TF risk understanding due to the industry’s nascent and fast-changing nature, both globally and locally, poses additional challenges.
  • Non-profit organizations (“NPOs”), including online fundraising: The NPO sector, including online fundraising, is assessed to have a medium-low risk for TF. The varied levels of awareness of emerging TF risks among charities and the evidential challenges in proving the intent of TF donors contribute to the vulnerability. The growth of online fundraising activities in recent years, driven by the rapid expansion of the digital economy in Asia, has significantly expanded the global reach of these activities, increasing the risk of terrorist financiers exploiting online fundraising for TF purposes.
  • Cross-border cash movement: Cross-border cash movement is also assessed as having a medium-low risk for TF. The anonymity accorded to small amounts of money brought across borders poses a risk, particularly concerning funding terrorist activities abroad.
  • Precious stones and precious metals dealers: The sector’s vulnerability stems from the high intrinsic value and relative compactness of precious metals, stones, and products, making them attractive for storing and transferring value, potentially for terrorism financing purposes. The emergence of asset-backed tokens, backed by precious metals, stones, or products, introduces additional complexity and potential vulnerability to TF. The overall TF risk for the PS/PM/PP sector remains medium-low.

Ingenia Consultants Pte. Ltd. is supporting financial institutions in their compliance, including anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”). Moreover, our internal audit services provide the board of directors and senior management with assurance regarding these obligations. Reach out to us to learn more about our regulatory support.
For any further information, please contact:
Adib Fajar
Associate
Ingenia Consultants Pte. Ltd.
adib.fajar@ingenia-consultants.com

Singapore has revamped its National Strategy for Countering the Financing of Terrorism (CFT), aiming to create a robust shield against the evolving threats of terrorism financing. The strategy emphasises a proactive, multi-pronged approach that combines stringent regulations, vigilant supervision, and decisive enforcement.

The Singaporean government’s five-pronged approach to countering the financing of terrorism (CFT) includes the following strategies, actions taken, updates, and future plans:

1. Coordinated and Comprehensive Risk Identification

Strategy in Action: The Singaporean government employs a whole-of-government approach to combatting money laundering, terrorism financing, and proliferation financing. The Risks and Typologies Inter-Agency Group (RTIG), comprising various agencies, oversees the identification, assessment, and mitigation of these financial risks. The government also partners with the private sector, academia, and foreign entities to enhance its understanding of terrorism financing risks.

Updates Since 2020: In 2024, Singapore conducted a survey to gain insights into its terrorism financing risks from the perspectives of other jurisdictions. The government also organized an industry consultation session with key financial institutions to discuss the latest terrorism financing typologies and threats. Additionally, a benchmarking exercise was conducted on the national CFT strategies of other jurisdictions to enhance the effectiveness of Singapore’s own strategy.

Looking Ahead: Singapore remains committed to participating in international and regional platforms to gain insights into emerging terrorism financing typologies and proactively evaluate and assess its key threats and vulnerabilities.

2. Strong Legal and Sanctions Frameworks

Strategy in Action: Singapore has established a comprehensive legal framework that empowers law enforcement agencies to combat terrorism financing activities effectively. Key legislation includes the Terrorism (Suppression of Financing) Act 2002 (TSOFA) and the Internal Security Act 1960 (ISA). The country also has a targeted financial sanctions framework that automatically implements new UN designations. The Inter-Ministry Committee on Terrorist Designation (IMC-TD) is responsible for designating terrorists and overseeing the freezing of terrorist funds and assets.

Updates Since 2020: The Corruption, Drug Trafficking, and Other Serious Crimes (Confiscation of Benefits) Act 1992 (CDSA) was amended in May 2023 to hold individuals criminally liable for allowing their payment accounts or Singpass accounts to be used for criminal activities. The Online Criminal Harms Act (OCHA) was enacted in July 2023, empowering the government to issue directives to online service providers to prevent activities suspected of involvement in criminal acts.

Looking Ahead: Singapore will continue to update its legal and financial sanctions frameworks to ensure their effectiveness in countering the financing of terrorism. The government is committed to providing law enforcement agencies with the necessary tools to tackle new challenges arising from the evolving threats of terrorism and its financing.

3. Robust Regulatory Regime and Risk-Targeted Supervisory Framework

Strategy in Action: Singapore has a robust regulatory and supervisory framework for financial institutions, designated non-financial businesses and professions (DNFBPs), and non-profit organizations (NPOs). Supervisors adopt a risk-based approach, targeting higher-risk entities and closely cooperating with the Suspicious Transaction Reporting Office (STRO) and law enforcement agencies to share information.

Updates Since 2020: The Payment Services (PS) Act 2019 was introduced in January 2020, along with corresponding AML/CFT requirements. Further amendments were passed in January 2021 to broaden the definitions of digital payment token (DPT) services and cross-border money transfer services. The Precious Stones and Precious Metals (Prevention of Money Laundering and Terrorism Financing) Act (PSPM Act) came into effect in April 2019, empowering the Ministry of Law to supervise the precious stones and precious metals dealers (PSMDs) sector for money laundering and terrorism financing risks. Amendments were made to the subsidiary legislation of the PSPM Act in November 2023 to require PSMDs to conduct customer due diligence measures for transactions involving payment received in DPT above SGD 20,000. The supervisory regime for the casino sector will be tightened in 2024, with the Gambling Regulatory Authority reducing the threshold for customer due diligence measures to SGD 4,000 for all financial transactions.

Looking Ahead: Sector supervisors will continue to assess and reinforce the private sector’s awareness of terrorism financing risks and controls through outreach, industry guidance, and risk-focused supervision. They will also harness data analytics and technological tools to bolster surveillance and supervision efforts.

4. Decisive Law Enforcement Actions

Strategy in Action: Singapore maintains a zero-tolerance policy towards terrorism financing. All credible instances undergo thorough investigation. The Counter-Financing of Terrorism Branch (CFTB) within the Commercial Affairs Department (CAD) of the Singapore Police Force leads these investigations. The Internal Security Department (ISD) collects and analyses intelligence concerning terrorism-related activities, including terrorism financing. The Suspicious Transaction Reporting Office (STRO) receives and analyses suspicious transaction reports.

Updates Since 2020: To address increasingly sophisticated cross-border cash movement activities, the Immigration and Checkpoint Authority (ICA) and CAD have strengthened detection and enforcement capabilities. The electronic Cross-Border Cash Reporting Regime (e-CBCRR) declaration form was introduced in May 2024. Agencies also utilize public-private partnerships, such as the CFT Operational Group, to enhance operational efficiency and detect terrorism/terrorism financing networks.

Looking Ahead: The CFTB, ISD, and STRO will maintain close collaboration to investigate and disrupt instances of terrorism financing. They will continue to take strong enforcement actions and expand collaboration with the private sector. Where significant risks are identified, agencies will collaborate to devise and execute suitable measures to address the
gaps.

5. International Partnerships and Cooperation

Strategy in Action: Singapore adopts a two-pronged approach to international cooperation. First, it assists other jurisdictions through formal and informal channels and seeks assistance when necessary. Second, it implements and contributes to developing international standards on combatting money laundering/terrorism financing/proliferation financing. Singapore actively participates in key international forums, such as the FATF, APG, SEAJust, CTF Forum, and INTERPOL’s Project PACIFIC Working Group. It also leverages both formal and informal channels to advance its CFT efforts, including mutual legal assistance requests, information exchange, and spontaneous exchange of financial intelligence.

Updates Since 2020: Singapore made terrorism financing a priority during its FATF Presidency from 2022 to 2024, championing various projects related to combating the financing of terrorism. The STRO is a member of the Financial Intelligence Consultative Group (FICG), which facilitates collaboration on AML/CFT matters and the development of regional solutions.

Looking Ahead: Singapore is committed to fully considering and executing requests for assistance from foreign jurisdictions related to terrorism and terrorism financing matters. It will continue to exchange information, conduct coordinated enforcement actions, and strengthen partnerships with international counterparts. The country is also committed to enhancing the understanding of emerging terrorism financing risks at both international and regional levels through active participation in various platforms.

Ingenia Consultants Pte. Ltd. is supporting financial institutions in their compliance, including anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”). Moreover, our internal audit services provide the board of directors and senior management with assurance regarding these obligations. Reach out to us to learn more about our regulatory support.
For any further information, please contact:
Adib Fajar
Associate
Ingenia Consultants Pte. Ltd.
adib.fajar@ingenia-consultants.com

What is inherent risk? Why do I need to know my organisation’s inherent risk level? How do I calculate my organisation’s inherent risk exposure?

This article provides you with answers to the above questions.

What

Inherent risk provides a baseline understanding of the level of risk present before any controls are implemented. It helps organisations gauge the natural risk level they are exposed to in a particular environment or activity.

How

Identify the risks – Consider the environment, activity, or process you are assessing. Identify the risk typologies applicable to your business. This can include operational, financial, compliance, strategic, or other types of risks.

Assess the likelihood – Determine how likely each identified risk is to occur. This could be based on historical data, industry standards, or expert judgment. Assess the factors that might increase or decrease the likelihood of the risk occurring.

Evaluate the impact – Determine the potential consequences if the risk materialises. Consider financial loss, reputational damage, operational disruption, etc.

Combine likelihood and impact – Combine the likelihood and impact to assess the overall inherent risk. This can be done using a risk matrix, where risks are plotted based on their likelihood and impact to produce a risk rating, e.g., high, medium, or low.

This process helps to understand the inherent risk level before any controls or risk management strategies are applied. Hence, inherent risk should be subjective to the extent possible and supported by data and facts.

Why

Knowing the inherent risk allows decision-makers to make informed choices about where to focus resources and attention. By accurately assessing inherent risk, your organisation can design and implement controls appropriate to the level of risk. An accurate assessment helps prioritize which risks need immediate attention and which are less critical, given that resources such as time, money, and personnel are often limited. An accurate inherent risk assessment helps allocate these resources effectively, ensuring that high-risk areas receive adequate attention while avoiding over-investment in low-risk areas.

Thus, understanding inherent risk helps balance the cost of implementing controls against the potential impact of risks.

In summary, accurately assessing inherent risk is fundamental to effective risk management. It enables organizations to make informed decisions regarding risks, allocate resources wisely, comply with regulations, and protect their long-term success and reputation.

We at Ingenia Consultants Pte. Ltd. provide initial and ongoing support to our clients to set up practical enterprise-wide risk management frameworks proportional to the size and scale of their operations. This ensures timely identification and mitigation of risks per the organization’s risk appetite.

For any further information, please contact:
Vijay Bharadwaj
Director
Ingenia Consultants Pte. Ltd.
vijay.bharadwaj@ingenia-consultants.com

Laws such as the Securities and Futures Act as well as the Financial Advisers Act have been crafted, modified, and updated to help regulate the financial sector in Singapore. These laws are combined to form a single modular licensing model and an integrated regulatory framework that provides industry participants with a sound and transparent set of rules. This framework was created to ensure that standards established across all institutions providing regulated financial services would remain uniform with consistent requirements while at the same time affording the financial services industry the flexibility of accommodating high-level innovation among its participants.

Due to the fact that the Securities and Futures Act (SFA) and the Financial Advisers Act (FAA) form a unified licensing model, a financial intermediary only needs to hold a single license. Should the intermediary’s business activities encompass multiple regulated activities, the intermediary needs just one license that encompasses the relevant regulated activities. The primary licenses available[1] are the capital markets services (“CMS”) license and the financial advisers license.

The following activities require a CMS licence under the SFA:

  • Dealing in capital markets products: Dealing in capital markets products in essence is brokerage.
    Capital markets products include securities, units in a collective investment scheme (CIS), over-the-counter (OTC) derivatives, exchange-traded derivatives and spot foreign exchange for the purposes of leveraged foreign exchange trading.
  • Advising on corporate finance: Corporate finance adviser activities may include giving advice on the laws or regulatory requirements on fund-raising by an entity, trust or collective investment schemes (CIS), giving advice on the offer to acquire or to dispose of capital markets products and/or giving advice relating to an arrangement, reconstruction or take-over of a company or a business trust, or any of its assets or liabilities
  • Fund management: A company who wishes to raise and manage third party investors’ funds in a collective investment scheme or invest them in segregated account into capital markets products.
  • Real estate investment trust management: A company that manages a REIT, which is a collective investment scheme (CIS) constituted as a trust that invests primarily in real estate and real estate-related assets specified in the MAS Code on Collective Investment Schemes, and is listed on an approved exchange
  • Product financing: The activity of providing financing to another person to buy or subscribe for capital markets products listed or to be listed on an organized market will require licensing
  • Providing credit rating services : A company that disseminates or distributes an opinion about the creditworthiness of a rating target through the use of a defined ranking system of rating categories is conducting credit rating activities.
    The activities involved in the preparation of a credit rating include:

    • analysing information or data;
    • formulating or drafting an opinion on the creditworthiness of a rating target;
    • evaluating or approving a credit rating;
    • monitoring or reviewing a credit rating which has been issued;
    • formulating or drafting credit rating methodologies or models; and
    • evaluating or approving credit rating methodologies or models.
  • Providing custodial services : The provision of custodial services for may include one or more of the following functions:
    • settlement of transactions relating to the specified products;
    • collecting or distributing dividends or other pecuniary benefits derived from ownership or possession of the specified products;
    • paying tax or other costs associated with the specified products;
    • exercising rights, including without limitation voting rights, attached to or derived from the specified products;
    • any other function necessary or incidental to the safeguarding or administration of the specified products with certain exclusion

Any financial intermediary that wishes to engage in any of these activities must obtain the Capital Markets Services License (CMS License) unless there is a specific exemption which applies. Should the intermediary wish to engage in multiple activities mentioned in the list, its Capital Markers Services License should include each of the required activities. Only a corporation can be granted the CMS License. If an individual intends to act as a representative of the CMS License holder in conducting any of the above activities, the individual will need to acquire the related CMS Representative’s License, unless there is an exemption.

Where multiple regulated activities are carried out, a CMS licence for multiple activities can be obtained, where required, with an exemption from the requirement to hold a financial adviser’s licence to carry out the regulated activities under the FAA. Each financial intermediary is required to obtain a license prior to the commencement of its regulated activities. Only intermediaries who are eligible for certain exemptions do not require a license.

Let’s the example with crowdfunding. If an intermediary wish to be a licensed crowdfunding platform, it depends on the business model of the intermediary. While most crowdfunding activities fall within peer to peer lending, the exact mechanics will determine what sort of license to be obtained. The MAS has published and FAQs providing some guidance on lending-based crowdfunding. This FAQs can be found here.

https://www.mas.gov.sg/regulation/faqs/faqs-on-lending-based-crowdfunding

However, do note that some activities may have exemptions for example invoice financing. Certain types of invoice financing may fall under certain exemptions. Thus, for further clarity, we do recommend having a chat with our licensing professionals who will help analyze your business model and provide appropriate advice on which license to seek for.

The MAS has published the following admission criteria for a license application:

The financial intermediary must have the following:

  • Minimum of 2 directors, at least one is resident in Singapore.
  • Chief Executive Officer with least 10 years of relevant experience and is resident in Singapore.
  • Minimum of 2 full-time Singapore-based individuals for each regulated activity (except REIT management). Such individuals are required to be appointed as representatives under the SFA.

The Monetary Authority of Singapore (MAS), that is the regulator in Singapore generally responsible for governing and enforcing financial markets regulations, is in charge of applications for (and the supervision of) capital markets intermediaries. As part of the application process, the MAS will be assessing each license application by taking into account the following factors:

  • Fitness and propriety of the applicant, its shareholders and directors;
  • Track record and management expertise of the applicant and its parent company or major shareholders;
  • Ability to meet the minimum financial requirements prescribed under the SFA;
  • Strength of internal risk management and compliance frameworks; and
  • Business model / plans and projections and the associated risks.

Whilst the MAS has published several guidelines to provide more clarity on the license application process, each financial intermediary’s model and activities may be different from another. Our licensing professionals will be able to provide you with appropriate advice to help you navigate the license application process.

[1] Additional licences are available under the Securities and Futures Act such as for an exchange, a recognised market operator or a benchmark administrator.

The first step for payment service providers is to understand the regulatory classification of the payment service(s) they are providing, including to consider whether they may require a license beyond payment services such as a license for dealing in securities.

There are 6 different kinds of payment service activities [1] under the Payment Services Act 2019 (PS Act):

  • An account issuance service
  • A domestic money transfer service
  • A cross border money transfer service
  • A merchant acquisition service
  • An e-money issuance service
  • A digital payment tokens service
  • A money changing service

We will discuss and describe each of the services in greater detail to help you understand the specific license you will require under the Payment Services Act 2019.

Account Issuance

Account issuance services are services[2] where a payment service provider provides any customer a facility, whether electronic or physical, that is held in the customer(s) name to receive instructions for payment and/or to execute payment instructions[3] .

Virtually all payment services business, will require to create accounts for their customers. Without an account issuance service, the business will not be able to receive and execute payment instructions. As such, most payment service providers will have this business activity declared in their application. Please also be mindful and advised that representing the payment instructions of a customer will also fall squarely under this provision.

Domestic Money Transfer Service

Domestic money transfer service is the service of accepting or receiving money for the purposes of transmitting, or arranging for the transmission of, the money or arranging receipt of any money from a payer in Singapore to a payee in Singapores[4].

In most circumstance, we cannot think of a business that will provide this as an independent service. Domestic money transfer services are well covered by banking level providers with facilities such as PayNow a Singaporean electronic money transfer service.

There may however be businesses that will require to obtain licensing for this activity where they provide it as an ancillary function such as where a stored value for fiat allowing transfers between Singaporean customer accounts. This licensed activity will also be necessary where the provider of a payment service interacts with the flow of funds from one Singaporean domiciled account to another Singaporean domiciled account, such as an escrow agent[5].

Cross-border Money Transfer Service

Cross-border money transfer service is the service of accepting or receiving money for the purposes of transmitting, or arranging for the transmission of, the money or arranging receipt of any money between a person in and a person outside Singapore[6].

These services generally apply to traditional remittance service providers such as Western Union, or Zhong Guo remittance which provide cross-border remittance.

Because the service includes accepting money for moving from a person outside Singapore to a person in Singapore or from a person in Singapore to a person outside Singapore, cross-border money transfer services capture contra-balance sheet activities. Contra-balance sheet is an activity where a local company writes off its debts by having the local payee clear its assigned local payment obligations in exchange for it discharging the cross-border payment obligation of the payee abroad. While no money has moved cross-border, the act of accepting the money to make contra-balance sheet arrangements will be captured by the Payment Services Act 2019.

Merchant Acquisition Service

Merchant acquisition service is the service of accepting and processing a payment transaction for a Singaporean merchant[7] under a contract governed by Singapore law[8] between the provider of the service and the merchant, which results in a transfer of money to the merchant pursuant to the payment transaction, regardless whether the provider of the service comes into possession of any money in respect of the payment transaction.

This service is largely akin to electronic payment gateways such as Braintree, Paypal and Swipe. However, it may also capture corporate services such as accounting firms that handle the all the payment transaction and invoice financing or factoring on part of their customers through their accounts or through a special purpose vehicle.

E-money Issuance Service

E-money is any electronically stored monetary value denominated in any fiat currency or pegged by its issuer to any fiat currency.

Digital Payment Tokens Service

The digital payment token service is perhaps the most complicated of all payment services because it requires an independent assessment and classification by legal experts as to whether a digital token that is offered by a payment service provider is a digital payment token.

A digital payment token is, or is intended to be, a medium of exchange accepted by the public, or a section of the public, as payment for goods or services or for the discharge of a debt. Because of advancements in technology, many consumers also use digital payment tokens as a vehicle for investment. You may wish to consider consulting our previous article on the classification of tokens for better clarity.

If a provider deals, facilitates, or facilitates the dealing of digital tokens that are for payment services (s”) then that provider will need to get licensed for the activity of being a digital payment service provider.

Money-Changing Service

Money-changing service means the service of buying or selling foreign currency coins or notes[9]. It is the very traditional business of exchanging hard currency notes as a business. More importantly this business requires the physical delivery of currency notes. This can include online purchases for foreign currency notes fulfilled by physical delivery of the exchange notes.

However, please be mindful that the online exchange of online currencies, i.e. the digital representation of USD paid by Visa or MasterCard, will not amount to a money-changing service. Instead, these amounts constitute e-money that may trigger licensing under a different payment service.

Summary

Save for the money-changing service (which has a strand of licensing in its own right), any other activity will require either a standard payment institution license or a major payment institution license.

We have summarised each of the regulated activities to assist you with an idea of whether your financial business activity will require licensing. If you feel you require further consultation on this matter, please do not hesitate to reach out to us to discuss the matter further so that we may help you to get a more comprehensive overview.

[1] S.6 PS Act

[2] Part 3 Schedule 1, Payment Services Act 2019

[3] “Payment Account”, Payment Services Act 2019

[4] “Domestic money transfer service” Part 3 Schedule 1, Payment Services Act 2019

[5] “domestic money transfer service” (d) Part 3 Schedule 1, Payment Services Act 2019

[6] “Cross-border money transfer service” or “domestic money transfer service” Part 3 Schedule 1, Payment Services Act 2019

[7] “merchant acquisition service” (a) Part 3 Schedule 1, Payment Services Act 2019

[8] “merchant acquisition service” (b) Part 3 Schedule 1, Payment Services Act 2019

[9] “money-changing service” (b) Part 3 Schedule 1, Payment Services Act 2019

On 30 December 2020, the Singapore terrorism financing (TF) national risk assessment (NRA) was published. This report is a joint effort by the Risks and Typologies Inter-Agency Group (RTIG), led by the Ministry of Home Affairs (MHA) and the Monetary Authority of Singapore (MAS) further enhanced by the involvement of the private sector and academia through various projects. It reflects their collective experience and observations over the past few years and provides valuable guidance for financial institutions (and other exposed persons) to calibrate their measures to counter TF.

Key Terrorism Financing Threats

The TF NRA identifies the following terrorist groups as the highest threats:

  • Islamic State of Iraq and Syria (ISIS): The ongoing conflict in Syria and Iraq, ISIS’ growing interest in Southeast Asia and the presence of ISIS militants in the region, namely under its East Asia division, Wilayat Sharq Asiyya, raise the possibility of Singapore being used by ISIS as a conduit to move funds in the region. Known means of transfers for the organisation involve cash couriers, money remittances, bank transfers, virtual currencies and online transactions.
  • Al-Qaeda (AQ): There are signs that Al-Qaeda and Jemaah Islamiyah are regrouping and may resume planning large-scale attacks, which require funds to be raised or moved.
  • Jemaah Islamiyah (JI): Prior to its disruption in 2001/2002, the Singapore JI network was largely self-financed. The funds were used to finance the Singapore JI’s local activities, as well as channelled to the JI leadership in Malaysia. The Singapore JI members eschewed the commercial banking system, primarily because these institutions were interest-generating and hence regarded as haram(forbidden).

The most salient TF threat to Singapore however pose radicalised individuals. Singapore also continues to detect a small number of radicalised Singaporeans who had intended to travel abroad and fight alongside ISIS and radicalisation among foreigners working and living in Singapore. All activities of individuals convicted for TF relate to the raising and/or moving of funds out of Singapore, using fairly unsophisticated channels (e.g. through remittance agents) and methods, to support terrorist activities abroad. The main modalities include self-funding from individuals’ salaries or savings, but may also come from charities (misused), or illegitimate sources such as criminal proceeds. The sums involved were small and did not involve complex or peculiar transaction patterns that would trigger suspicion.

Terrorism Financing Vulnerabilities and Risks

The TF NRA identifies the following key areas for terrorists to exploit to raise, move and use funds.

(Source: 2020 Singapore Terrorism Financing National Risk Assessment; Diagram 1: TF Risk Rating)

Money Remittances (High Risk)

Terrorist financiers are known to use money remittance (cross-border money transfers) channels widely to move funds, both into, out of, and within the region. International typologies also suggest the use of unlicensed remittance channels (including hawalas) to facilitate TF fund flows. These unlicensed remittance businesses pose special TF risk. In Singapore, TF threats in this sector have also materialised.

Some of the counties in the region that local remittance agents frequently transact with are known to be more exposed to terrorism / TF risk. While some remittance businesses are using advanced data analytics tools to monitor transactions and detect TF-related red flags, other remittance agents, namely smaller ones, rely on less sophisticated controls. Thus far, known local TF cases have shown that TF transactions often involve small amounts and are funded from legitimate sources such as salaries and profits from businesses.

Banks (Medium-high Risk)

Terrorist financiers are known to use the banking sector to raise and move funds into and out of the region. These typologies are well reported in the region and around the world (e.g. due to the ubiquity of banks and ease of transacting through them). Singapore’s status as an international financial centre with its interconnected banking system exposes it to large international money flows. In addition, its close geographical proximity to countries with active terrorist activities or terrorist groups makes Singapore vulnerable to being used as a conduit for TF purposes. So far, TF activities are however not known to be conducted through banks in Singapore, although a small amount of funds / assets relating to persons of interest would have been initially deposited with the banks.

Local cases have shown that radicalised individuals and sympathisers are known to transact in small amounts and fund terrorism-related activities from legitimate sources such as salaries or savings. It is thus not easy to differentiate these transactions from the individuals’ normal financial activity.

Non-profit Organisation (Medium-low Risk)

International and regional typologies have shown that terrorist financiers are known to use non-profit organisations (NPOs) as the means to raise, move and use funds. For example, international aid flowing into liberated areas of Iraq and Syria could present opportunities for ISIS to generate funds. Besides the possible diversion of legitimate funds for TF due to weak internal controls, the sector is also seeing an emergence of online fundraising movements that call on sympathisers to donate to families of jihadists, terrorist detainees and martyrs.

NPOs in Singapore are predominantly registered charities under the regulatory purview of the Commissioner of Charities (COC). Singapore’s NPO sector is largely domestically oriented. Only three out of ten charities engage in some form of overseas work and/or make donations and/or provide funding or services to beneficiaries outside Singapore. An even smaller proportion of charities within this group conduct these activities in higher-risk jurisdictions. Thus far, there has been no indication of foreign sources of funding flowing into Singapore via Singapore’s local NPO sector to support domestic terrorism-related activities, nor has there been any indication of funds raised by local NPOs being moved to fund terrorism-related activities abroad.

Given that the diversion of funds from local NPOs for TF has been identified as a threat, the charity sub-sector which has relatively more exposure to overseas activities, is assessed to be more vulnerable to TF. In recent years awareness of TF risk has increased amongst charities. Some charities have provided training for staff and volunteers to raise awareness and understanding of TF risks. However, the level of TF risk understanding still varies amongst the registered charities. Larger charities tend to have a better understanding of risk management.

Digital Payment Token Service Providers (Medium-low Risk)

Digital payment tokens (DPTs, also referred to as virtual assets / currencies) have emerged as a potential means for terrorist financiers, particularly tech-savvy militants, to raise and move funds across borders. DPTs are susceptible to TF abuse because of: (i) the anonymity they offer; (ii) the convenience they provide as a near-instantaneous value transfer medium; (iii) their ability to make high-value transactions quickly; and (iv) the cross-border nature of the transactions. Known international typologies include using DPT service providers to solicit DPTs online and then transfer the DPTs through multiple hops within a short duration to a wallet address associated with extremist sites. However, there is as yet, no evidence of widespread usage of DPTs. Arising from COVID-19, authorities have nonetheless noted indications that terrorists and terrorist groups may be looking to make greater use of virtual currencies to support their nefarious activities, and this is an area which the relevant authorities in Singapore continue to monitor closely.

Given that DPT service providers only recently came within MAS’ regulatory ambit, the levels of TF risk awareness and AML/CFT controls are lower compared to the other financial sectors.

Cross-border Cash Movement (Medium-low Risk)

Terrorist financiers around the world have been known to use cash couriers as a means to physically move funds across borders to finance their activities. These typologies are well reported in the region, perpetuated by cash-intensive economies, porous borders, loose maritime boundaries and proximity to conflict zones. The known routes do not involve Singapore and there is no indication of cross-border cash movement (CBCM) relating to TF in Singapore to-date. Nevertheless, Singapore’s proximity to countries with active terrorist groups makes it vulnerable as a potential location to pick up and transit funds for foreign terrorist fighters travelling to conflict zones.

Singapore has stringent border controls and a robust framework to detect illicit CBCM. Nonetheless, the risk remains that radicalised individuals intending to travel out of the region to join terrorist groups carry cash out of Singapore to fund terrorist activities abroad, especially if these individuals should leave Singapore undetected. International typologies also recognise that given the small amounts of monies typically associated with terrorism, that they would frequently fall below the reporting threshold.

Precious Stones and Metals Dealers (Medium-low Risk)

International and regional typologies indicate relatively few instances of terrorist financiers using precious stones and precious metals (PSPMs) to move or raise funds for terrorism. However, PSPMs have high intrinsic value in a relatively compact form and tend to maintain or increase their value over time. This means that PSPMs could be a good store of value and accepted as an alternative to monies, whether in Singapore or in conflict-ridden and terror-prone states.

Since 2014, cash transactions with precious stones and metals dealers (PSMDs) reporting regime. From April 2019, a full suite of AML/CFT supervisory measures applies in the PSMD sector.

Being a sector with a diverse range of activities and scale of operations, the levels of TF risk understanding and AML/CFT controls are varied. The retail sector for precious stones and second-hand dealing of precious and precious products are assessed to have a lower level of awareness and controls.

You can find the full Terrorism Financing National Risk Assessment report at https://www.mas.gov.sg/-/media/MAS/Regulations-and-Financial-Stability/Regulatory-and-Supervisory-Framework/Anti_Money-Laundering_Countering-the-Financing-of-Terrorism/TF-NRA/Terrorism-Financing-National-Risk-Assessment-2020.pdf.

Under the Payment Services Act 2019 (the “PS Act“)_a digital payment token (“DPT“) “is, or is intended to be, a medium of exchange accepted by the public, or a section of the public, as payment for goods or services or for the discharge of a debt”[1] which “is not denominated in any currency, and is not pegged by its issuer to any currency” and “can be transferred, stored or traded electronically”.

The starting point of the regime is the basis that the PS Act targets digital payment instruments created specifically for the settlement of payments for goods and services. The regime therefore prima facie does not encompass financial businesses that sell digital payment tokens for investment purposes.

However, the PS Act anticipates that DPTs facilities will include marketplaces[2]that allow the buying and selling of DPTs that are not originally intended for the payments of goods and services but are capable of it. The determination of the DPT is in this case a tricky matter. For instance, a digital tokens offering for a token such as Cardano (a kind of digital token) may have been bought in by investors for capital appreciation / investment purposes while being sold off in a secondary market to other users of the token who can use the token to redeem cheap cleaning services. Because of the complex correlations between the investment purposes of the token and the utility purposes of the token, DPTs often land in a grey area of regulatory application.

Fortunately, a framework has been provided for to ensure that DPTs are for the purposes set out under the PS Act. Digital payment token service providers (and applicants for such licence) are required to provide a legal opinion of their assessment for all DPTs, except Bitcoin, Bitcoin Cash, Bitcoin Gold, Bitcoin SV, Ethereum, Ethereum Classic, Litecoin and Ripple[3]. The digital payment token service provider, through the legal opinion, has the burden of ensuring that the DPTs will be used by the customer primarily for payments / the redemption of goods and services.

An applicant is expected to set out clearly in its application, the assessment of the DPT. Within its business plan, it should explain clearly the factors that it has relied on to determine whether a customer that buys a DPT from it does so with the intention of using it for payments for goods and services. The applicant should also address the risks under which a customer will use the DPTs for investment purposes and how that risk is mitigated.

For instance, an applicant proposing to list a DPT for the redemption of cleaning services has limited the maximum DPT value to SGD 100 equivalent on the relevant DPT. Whereas a DPT for the purchase of computers could have a DPT value limit of SGD 5,000 on its relevant DPTs.

A great degree of critical thinking and analytical skills will be required to the limiting of risks for DPTs bought for investment purposes, failing which a DPT may risk judicial reclassifications risk and amount to a security under the Securities and Futures Act.

You may wish to consult one of our experts when crafting risk mitigation mechanics for digital payment tokens offered

[1] PS Act Definition, Digital Payment Token, ss(c)

[2] PS Act, First Schedule, Definitions, digital payment tokens exchange

[3] Form 1 Application for Payment Service License para 7.21 https://www.mas.gov.sg/-/media/MAS/Sectors/Forms-and-Templates/Form-1—Application-for-a-Payment-Service-Provider-Licence.pdf

Regulatory technology (“regtech”), a subset of financial technology (well known as “fintech”), seeks to achieve better regulatory outcomes through the use of technology. Regtech has been used by financial institutions for decades; for example, WorldCheck, a well-known tool used to screen customers. In recent years, regtech gained increasing traction among financial institutions for the efficiency and effectiveness that it brings to financial services businesses.

Recognised Advantages of Regtech

Regtech provides distinct advantages. In addition to being more efficient, it allows for more consistent processing and also for more sophisticated analysis due to the amounts of data that can be automatically processed. As a result, financial institutions are implementing regtech and even developing their own regtech, by themselves or in collaboration with regtech companies or other specialists.

Regulators also recognise the benefits of regtech. For example, the Monetary Authority of Singapore (“MAS”) recently endorsed the use of technology for pre- and post-trade checks: “[Manual processes and data manipulation make] such checks labour-intensive, time-consuming, and highly susceptible to human errors. MAS encourages [private banks] to explore the use of technology and data analytics to automate and process data in a more efficient way that will reduce errors and ease resource constraints.”[1]

Challenges for Small Financial Institutions

Small financial institutions, such as external asset managers (“EAMs”) or hedge fund managers, however struggle in utilising of regtech. Although a range of regtech systems are ready for use, a great number of them require expertise for additional calibration to be of full use, for example the definition of rules in transactions monitoring. More crucially, regtech systems are often expensive. Regtech solutions are expensive to develop and deliver their full potential when applied to scale. As a result, their prices are geared to producing cost efficiencies when used at scale. Conversely, small financial institutions commonly operate at small volumes. For example, an EAM on-boards one to two new clients every two months, not fifty or a hundred clients per day and its clients have four or five incoming or outgoing transactions per month, not thousands. A hedge fund manager has ten or fifteen staff whose fit and proper status must be ascertained, personal transactions must be monitored and who require training. Because small financial institutions cannot profit from the economies of scale of regtech, the cost prevents implementation and the analytical benefits of these solutions.

The Easy Solution

The most evident option for small financial institutions to implement regtech is to make use of ready-to-use systems. These regtech systems provide pre-configured analytics and are most often Software as a Service (“SaaS”) which saves the financial institution the efforts of IT implementation. Such ready-to-use regtech systems are frequently found for anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”) screening. They allow the financial institution to automate specific steps in a larger process while the financial institution continues carrying out other steps manually. Increasingly, these ready-to-use regtech systems automate even entire processes or task management, for example the management of review cycles and the tracking of the expiry of documents in addition to AML/CFT screening.

Access to Advanced Regtech

At Ingenia, we are pursuing a second level of access to regtech for small financial institutions. We leverage our position as a specialised service provider in compliance to multiple small financial institutions for their benefit.

  1. We identify the regtech solutions that allow smaller financial institutions to benefit from the economies of scale.
  2. We operate these regtech tools on behalf of our clients applying our expertise to optimise results.

We select best-in-class solutions fitting the needs of smaller financial institutions from regtech providers that allow us to use their systems for our clients. One system at a time, we make sophisticated systems and their advanced capabilities available to the small financial institutions we service. For example, corporate structures of clients are verified through an advanced AML/CFT screening system, e-learning provides for on-going training and awareness of regulatory obligations, and a policy management system allows for the mapping of regulations to policies and procedures. At the same time, we apply our understanding of small financial institutions to tailor the systems to them. For example the trainings distributed through our e-learning system cover the various aspects staff in small financial institutions are confronted with, the policies managed in the policy management system are tailored to the lean structures of small businesses, and processes implemented throughout the systems generally fit small operations. Moreover, we operate the systems applying our expertise to gain efficiencies and to adapt the systems to current developments. Joining us on our journey for technological advancement our clients thus benefit from the best of many worlds: They reap the benefits of regtech in a way that is tailored to small financial institutions and applied by experts.

If you would like a greater discussion around automating compliance processes in your business and the type of grants you can rely on to digitize your processes, reach out and speak to us today.

[1] Information Paper on Private Banking Sales and Advisory Practices dated February 2020, p. 4.

COVID 19 has caused significant turbulence in the global markets. Global stock markets have yet to recover and traditional assets are less attractive in the current situation. However, a potential bright spark could be seen in the crowdfunding space. As fall-out from COVID 19 has placed enormous pressure on businesses, numerous reports have been compiled across the world on current business sentiments and pressures faced by these businesses. One such report conducted by Beauhurts mentions that in the UK 22% of jobs in the high-growth economy are at moderate to critical risk. GBP 320 billion of turnover across the high-growth economy is also at moderate to critical risk. Seed stage companies are the least likely to be negatively affected by the coronavirus, whilst later stage businesses are most at risk.

However early in the year when the COVID 19 situation was developing and many countries were coming to terms grappling with it, a growing trend emerged. With many being furloughed and even more remote working, crowdfunding was growing. With public data from late April showing that the top 3 crowdfunding platforms in France successfully funding 245 projects since the start of the year. These projects managed to raise just over EUR 6 million from over 90,500 investors. Similar trends could be seen in other regions of the world. In Japan, Reuters news reported Japanese crowdfunding companies seeing a surge in business during the pandemic. Makuake Inc said revenue in the period of April to June 2020 rose 61% compared with the previous three months and 209% versus 2019, with the number of projects and unique users soaring. Funds raised through Campfire in May rose six times from the same month a year earlier to JPY 4 billion (USD 37.44 million), with investors rising almost five times to 390,000. Readyfor said total transaction value rose 4,400% in April from March. Opinions from several Singapore platforms also indicated increased interest from SMEs as well as interested backers approaching crowdfunding companies although no official data has been released.

Whilst these trends are impressive, data from Kickstarter shows only a modest increase in interest. Kickstarter reported an increase of only 8.93% with 2,587 projects being funded from January to 2 April 2020. While this might be seen as lackluster, it does cement another underlying trend: People are still supporting crowdfunding campaigns even during this COVID situation. In fact, support for crowdfunding campaigns seems to be increasing during these times. Kickstarter saw an increase of 38% in funds raised to a total of over USD 71 million by 3 April 2020. This runs contrary to the impression that consumers might be tightening their purse strings in light of the poor business sentiments caused by COVID. Data is increasingly showing that more people are willing to back crowdfunding projects. This could be the combination of investments shifting to non-traditional assets, as market indices capitulated, but it could also be the rising levels of altruism seen in the global population as a result of COVID. These two trends, of increasing support from the people as well as increased demand from local business, are galvanizing each other leading to the surge in popularity of crowdfunding.

Cases can be seen around the world with small and medium enterprises turning to crowdfunding to keep their businesses afloat. Backers could also be seen increasingly supporting these enterprises through various methods. Reward-based crowdfunding, where the company raises capital through an online platform and offer investors a gift or “perk”, is seen to grow significantly. Crowdfunded companies are also using this period to improve their outreach to backers. An increasing trend amongst funded SMEs is the improved digital outreach. Many companies are increasing their communications with backers and keeping them informed of progress. With more working for home, SMEs are seen increasing their outreach away from traditional brick and mortar presence to more innovative remote methods such as video conferencing.

Technavio has been monitoring the crowdfunding market and it released some interesting data. It expects the value of the crowdfunding market to grow from USD 100 billion in 2019 to a projected USD 224 billion by 2024. The P2P lending segment will account for the largest crowdfunding market share. The market in the APAC region alone was valued at USD 30 billion in 2019 and is anticipated to grow to USD 86 billion by 2024. Interest in crowdfunding is poised to grow and become a normal feature in one’s investment portfolio.

COVID indeed has presented challenging problems to countries, governments, businesses and its people. However, through such challenges, trends that display the resilience of people and the tenacity of businesses to adapt arose. Many say that the world will see a new normal. This new normal will indeed change the way we raise capital and invest and deploy funds, be it for investment purposes or more altruistic intentions. Crowdfunding is here to stay, and the data so far indicates that it may be one of the silver linings COVID has to offer.

If you want to learn more about crowdfunding or the regulatory requirements for crowdfunding in Singapore contact us at Ingenia.

Sources:

https://blogs.lse.ac.uk/europpblog/2020/04/24/evidence-from-france-how-crowdfunding-is-being-used-to-support-the-response-to-covid-19/

https://www.businesswire.com/news/home/20200804005345/en/Crowdfunding-Market-Analysis-Highlights-Impact-COVID-19-2020-2024

https://www.reuters.com/article/us-japan-fintech-crowdfunding/japans-crowdfunding-firms-report-surge-in-business-during-pandemic-idUSKCN24N0QT

https://www.japantimes.co.jp/news/2020/09/01/business/japan-coronavirus-businesses-crowdfunding/

https://www.globenewswire.com/news-release/2020/07/21/2065410/0/en/Global-Crowdfunding-Market-to-Grow-at-a-CAGR-of-16-Over-2020-2025-Countries-Actively-Using-Crowdfunding-Platforms-to-Raise-Money-for-Frontline-Workers-Amid-COVID-19.html

https://crowdsourcingweek.com/blog/global-crowdfunding-projects-tackle-coronavirus/

https://enventyspartners.com/blog/coronavirus-impact-covid-19-crowdfunding/

https://startupnation.com/start-your-business/crowdfunding-tips-covid-19/

https://crowdsourcingweek.com/blog/the-coronavirus-impact-on-uk-crowdfunding/